Now we look at the various income sources and differentiate them into drawdown and non-drawdown categories.

A Drawdown income source means that as you take out money to spend, you are in effect reducing the principal left behind. This means that if you have a long retirement, you will have a higher chance of using up your drawdown income source.

A non-drawdown income source is one where you can spend money without reducing the principal amount.

It is very obvious which income source is preferred. Now lets list down the various income sources and categorize them accordingly:

Drawdown income sources
1. Human capital - this is a drawdown asset. This asset brings in income as long as you can or is willing to work. Also you cannot work forever. The moment you stop working, the income from this asset stops! And this asset will eventually become a liability- when you get sick, old and aged and need medical care!

2. Savings with low interest rate. Many people put money in FDs and endowments and will be depending on them to fund their retirement. If the drawdown rate is higher than the interest rate, they will eventually use up the principal. This includes amounts in their CPF savings.

3. SRS savings - this is a drawdown income source as you are given a 10 year timeframe to drawdown the savings the moment you trigger the first drawdown.

Non-drawdown income sources (non perpetual)
1. Pension - those lucky enough to have pension (especially government pensions) will have a good source of retirement income for life. However, although pensions are non-drawdown, they are not perpetual. The moment you die, they will stop paying. You cannot bequeath your pension to your loved ones.

2. CPF Life - the next best thing to pension is the CPF Life. The payout amount is directly tied to the amount you contributed to your RA. It is designed to pay you a monthly stipend for as long as you live. Again, if live longer than 85, there is no bequest left for your loved ones. Hence this is not a perpetual non-drawdown income source.

Non-drawdown income sources (perpetual)
Perpetual non-drawdown income sources are what we should build up if we want to live a good retirement without scrimping and yet leave something behind for our loved ones.

1. Investment property - a good investment property can generate steady and good rental income to sustain our retirement while being a retainer of value. It is time tested for generations. After providing years of rental income for retirement sustenance, you can still bequeath to your loved ones when you pass on. Not only that, the property value can also grow over time!

2. Investment in stock and shares. Here I am not referring to stock trading, but investing for the long term. Investing in good blue chip stocks that give good dividends will pay for itself over the long run. You can enjoy yearly dividends and see the dividends pay for your initial investment in the stocks over time. Eventually, the stocks will become "freehold" while you continue to enjoy the dividend payout. And after all the enjoyment, you can bequeath the stocks to your loved ones for them to continue enjoying the dividends.

3. CPF savings (OA, SA & MA). You may not have thought that your CPF savings can be a perpetual non-drawdown income source. But surprise, surprise, it can be. If you have a substantial amount saved up in your CPF accounts, they can generate sufficient interests for you to tap on perpetually without reducing the principal amount.

In the above, I have listed down some examples of income sources and which category they fall in. The category of income sources that we should aim to build up is the perpetual non-drawdown type. Even if you dont have intention to bequeath anything, having perpetual non-drawdown income sources to fund your retirement will definitely give you great peace of mind to live and enjoy a good retirement.

In our retirement planning, we have 3 to 4 non-drawdown perpetual income sources (properties, stocks and shares, CPF), and 3 non-drawdown, non perpetual income sources (CPF Life and some private annuity plans) and 2 to 3 drawdown income sources (SRS, some savings eg. SSB, and FDs)